International tax planning is undergoing enormous change. By the beginning of 2024, a new Global Minimum Tax (GMT) regime will come into effect under the OECD’s base erosion and profit-sharing initiative. With these newly introduced “Pillar Two” rules, multinational companies with revenues of more than €750 million will have to pay a minimum 15% rate of tax, wherever their profits are booked.
The window to get ready for global minimum tax is shrinking, and many tax departments are struggling to coordinate data collection and workflow automation in a time when the new GMT regulations go into effect. Failure to comply will expose a company to significant financial, operational, and reputational risk.
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According to the Thomson Reuters Institute 2022 State of the Corporate Tax Department survey, more than a third (35% ) of tax professionals in multinationals said they would need more efficient automation technology and streamlined processes to keep up with regulatory changes such as GMT. In addition, the survey found that 57% of tax department employees said they feel they do not have the resources they need to meet the challenges they face. It is, therefore, necessary to ensure to have the right technology capabilities and tax team available to make the process of compliance as easy and efficient as possible and avoid risking regulatory sanctions or penalties.
What are the GMT requirements and challenges?
- GMT creates several compliance challenges around data. Chief among these is assimilating all the necessary data from more areas of the business (including non-financial data such as HR information), making sure nothing is missing, and that data is accessible, consistent, and reliable, so that calculations, internal reporting, and external disclosures can be carried out more frequently and accurately.
- All of this feeds into and out of workflows, so they must also be fit for purpose. If the tax department needs to re-assess workflows for loading data, applying tax rules, creating reports and disclosing that information as required, this is a good opportunity to identify where process improvements can be made to embed compliance so that any obligations can be met with minimum disruption or difficulty.
How can tax technology help tax departments with Global Minimum Tax compliance?
Time is of the essence. The timeframe for implementation is aggressive, the changes are disruptive and the burden on tax teams is heavy, so tax departments need to take a smart approach. Technology that automates processes and that automatically builds compliance into workflows will save time, minimize risk, and ultimately make it easier to do an increasingly challenging job better. Here are some ways technology can be beneficial:
(1) Eliminates the need to monitor changes in GMT rules – A GMT solution can monitor changes in the related tax rules across hundreds of jurisdictions and alert tax departments to any changes that may impact their organization’s compliance obligations.
(2) Centralizes data collection and governance – A GMT tax solution allows a company to create a “single source of truth” assimilating all necessary data (e.g., legal entity data, trial balance data, provision data) within one dataset in one workable format. A central data source saves the tax team time by facilitating the data hygiene and collection processes, reducing the need for data wrangling, and allowing the deployment of data governance strategies for other departments.
(3) Reduces errors by automating tax calculations – With calculation rules built-in, technology can determine all OECD Pillar 2 calculations for reporting including transitional safe harbor exemptions, the global minimum top-up tax including the qualified domestic minimum top-up tax (QDMTT), the income inclusion rule (IIR), the undertaxed payments rule (UTPR), and the subject to tax rule (STTR).
(4) Streamlines compliance workflows – Technology can provide an end-to-end workflow, reducing the manual effort required and minimizing the risk of errors. For example, GMT software can prepare and submit Pillar 2 forms to the relevant tax authorities and track country deadlines automatically.
(5) Connects data and processes through the cloud – Cloud-based technology allows for the seamless integration with third-party solutions through APIs, notably existing systems such as ONESOURCE Tax Provision from Thomson Reuters, where a significant share of the data needed for GMT purposes may already reside. Third-party Excel templates such as custom tax department work papers would be supported.
(6) Enables multi-year forecasting – GMT software can help companies identify potential tax risks and opportunities over the long term. By forecasting their tax position over multiple years, companies can take proactive steps to determine the impact of future global minimum tax rule changes and optimize their tax positions.
The Orbitax Global Minimum Tax (Orbitax GMT) can help
Thomson Reuters is a third-party distributor of Orbitax Global Minimum Tax (Orbitax GMT) which addresses all the Pillar 2 rules and continuously updates regulations in real-time for hundreds of countries. It automates data collection, tax calculations, reporting, and tax form generation, simplifies data management, performs risk assessments, and facilitates forecasting. It also allows teams to create their own custom workflows to ensure compliance across the globe.
Orbitax Global Minimum Tax (Orbitax GMT) also integrates with a businesses’ existing systems, where a sizeable proportion of the data required for GMT may already exist, including ONESOURCE Tax Provision from Thomson Reuters. In this way, it can preserve the value of those existing investments in technology.
Find out how Orbitax technology can help companies meet their global minimum tax requirements.
